You can calculate COGS by adding the cost of your inventory to the purchases made during a specific time period. Subtract the cost of inventory left at the end of your timeframe to calculate your COGS. Whether you’ve started a small business or are self-employed, bring your work to life with ecommerce bookkeeping our helpful advice, tips and strategies. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market.

Financial statements help you forecast revenue and make concrete plans to help your ecommerce business grow. It also helps you keep track of any changes in how your business is performing. If your business has big (or slow) months or weeks, your financial statements will show you. They’ll also help you keep an eye on expenses, and look for ways to tighten up your bottom line. Establishing good accounting and bookkeeping practices is critical to run a stable, profitable business.

Best Accounting Software for Small Businesses

One of the most common mistakes we see bookkeepers make with ecommerce accounting is expensing all products immediately when the product is purchased from the vendor. They want to live in the bank account and track those transactions, calling it good (the poor dears!). The inaccuracies that this method causes can have a dramatic impact on your business’s success. The best way to prepare for the feast-and-famine cycle is to keep a budget. Once you create a budget for your online business, it takes some monitoring and tweaking to make sure you stay within it.

• Customer returns and chargebacks are two different types of expenses that need separate recording.
• When you have a clear picture of what your money is doing, you can get a better handle on your business spending.
• They show the total profit and loss for the time when the sheet was made.
• Accurate inventory tracking lets you know when to reorder products.

That gets even more complicated if you’re selling your products through multiple ecommerce channels. Depending on your state and your company’s revenue, you may need to file sales tax on a monthly, quarterly, or annual basis. If you file once a month—or even once every three months—you should put it near the top of your regular accounting to-do list. For ecommerce companies that use accrual accounting, however, bank reconciliations are more in-depth. That’s because you’re going through your statements and the bank’s to make sure that every uncleared transaction you recorded actually went through.

Cash Flow Statement

Being diligent with each of them will help you understand your cash flow and prepare for the tax season. You’ll have to adopt this accounting system as your operations scale. Cash basis method for tax reporting is only permitted for companies with an average annual growth receipt of $5 million or less.

• Or you can use accounting software to automatically import it for you.
• If you don’t enter and categorize them correctly, you could soon find your balance sheets out of whack.
• It is important to note that COGS are different from your operating expenses, which are expenditures not directly related to the production of your products.
• Now one bookkeeper can manage the bookkeeping for several businesses in fewer than eight hours a day.

Manually tracking inventory becomes even more complicated when you sell across multiple eCommerce platforms. Your chosen accounting software might even have built-in inventory management tools. Some other notable trackers include Netsuite, Lynnworks, and SOS Inventory.

Balance your books

Inventory management is a key part of the bookkeeping process because your inventory is considered an asset that holds value. Add the sales tax rates for your state, county and city, then multiply the total percentage by your sales amount to get your sales tax amount. Those baby steps can help you manage your organization on a new and improved system. Small steps also give everyone time to familiarize themselves with the new bookkeeping software.

It offers a host of money management features including unlimited users, double-entry bookkeeping, and budgeting support. You can also customize your dashboard to review all your ecommerce metrics at once. For example, the aforementioned coffee-table maker would “earn” $800 as soon as she finished her table, for example—but her business bank account might still be empty. Accurate bookkeeping is a baseline requirement for all business planning and operations.